oversight

Intercity Passenger Rail: Amtrak Faces Challenges in Improving Its Financial Condition

Published by the Government Accountability Office on 1999-10-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                   United States General Accounting Office

GAO                Testimony
                   Before the Subcommittee on Ground Transportation,
                   Committee on Transportation and Infrastructure, House of
                   Representatives


For Release
on Delivery
Expected at
                   INTERCITY PASSENGER
10 a.m. EDT
Thursday           RAIL
October 28, 1999



                   Amtrak Faces Challenges in
                   Improving Its Financial
                   Condition
                   Statement of Phyllis F. Scheinberg,
                   Associate Director, Transportation Issues,
                   Resources, Community, and Economic
                   Development Division




GAO/T-RCED-00-30
    Mr. Chairman and Members of the Subcommittee:

    We appreciate the opportunity to testify today on Amtrak’s overall
    financial condition; its progress in becoming free of operating subsidies;
    its use of Taxpayer Relief Act of 1997 (TRA) funds; and its need for capital
    investment to improve quality of service. Our statement is based on our
    July 1999 report on Amtrak’s financial condition and our ongoing work for
    this Committee.1 In summary:

•   Amtrak’s overall financial condition improved in fiscal year 1999. Its net
    loss—revenues less expenses—was $907 million in fiscal year 1999.2 This
    loss is $23 million less than Amtrak’s net loss of $930 million in fiscal year
    1998. Amtrak estimates that its net loss for fiscal year 2000 will decrease to
    $828 million.
•   The administration and the Congress have directed Amtrak to be free of
    federal operating subsidies by the end of 2002. Amtrak reduced its
    “budget gap”—the gap that it needs to close to be free of federal
    operating subsidies —by $18 million in fiscal year 1999. However, it must
    reduce the gap by an additional $291 million in the next 3 years. This
    needed reduction is nearly four times greater than the reduction Amtrak
    has been able to achieve in the previous 5 years. Finally, Amtrak faces
    many challenges in meeting its business plan goals to achieve operational
    self-sufficiency.
•   The Taxpayer Relief Act of 1997 provided Amtrak with about $2.2 billion
    to acquire capital improvements and maintain existing equipment in
    intercity passenger rail service, among other things. Amtrak reports
    spending over $1.2 billion of these funds, as of May 31, 1999. Amtrak has
    spent over half of this money—or $756 million—on capital improvements
    such as track signals and improvements to bridges and electric catenary
    systems.3 Amtrak has also applied $427 million, or about one-third of its
    Taxpayer Relief Act expenditures, to a pool of expenses for maintenance
    of equipment through May 1999. However, because of the way that Amtrak
    applies Taxpayer Relief Act funds to maintenance of equipment expenses,
    it has not identified specific expenses that the Taxpayer Relief Act funds
    were used to cover.


    1
     Intercity Passenger Rail: Amtrak’s Progress in Improving Its Financial Condition Has Been Mixed
    (GAO/RCED-99-181, July 9, 1999). We expect to report to this Committee on Amtrak’s use of Taxpayer
    Relief Act funds and its major costs and capital needs in 2000.
    2
     Amtrak’s fiscal year 1999 financial results are unaudited. Net loss amounts exclude federal financial
    assistance from revenue.
    3
     Catenary is the structure used to conduct electricity to operate electric trains.



    Page 1                                                                               GAO/T-RCED-00-30
             •   Capital investments are critical to supporting Amtrak’s business plans and
                 maintaining its viability. Such investments are needed to help Amtrak
                 improve its quality of service and attract revenues. However, Amtrak does
                 not have a current comprehensive 5-year plan. Further, it has significant
                 unmet capital needs over the next 20 years. As a result, it is unclear at this
                 time what Amtrak’s total capital needs are and how Amtrak plans to fund
                 these needs.


                 The Rail Passenger Service Act of 1970 created Amtrak as the nation’s
Background       intercity passenger railroad. The act, as amended, gave Amtrak a number
                 of goals, including providing modern, efficient intercity passenger rail
                 service; giving Americans an alternative to automobiles and airplanes to
                 meet their transportation needs; and minimizing federal operating
                 subsidies. Today, Amtrak provides intercity passenger service along 42
                 routes in 45 states.

                 Like all major national intercity rail services in the world, Amtrak receives
                 substantial government support. From 1971 through October 1999, the
                 federal government has provided Amtrak with over $23 billion in financial
                 assistance. This includes (1) about $2.2 billion in fiscal years 1998 and 1999
                 through the TRA for capital improvements and the maintenance of existing
                 equipment in intercity passenger rail service, among other things, and (2) a
                 $571 million fiscal year 2000 capital appropriation.4

                 In December 1994, at the direction of the administration, Amtrak
                 established the goal of eliminating its need for federal operating subsidies
                 by 2002. In addition, the Amtrak Reform and Accountability Act of 1997
                 (Amtrak reform act) prohibited Amtrak from using federal funds for
                 operating expenses, except for an amount equal to excess Railroad
                 Retirement Tax Act payments, after 2002.5 This statutory provision is the
                 test for “operational self-sufficiency” that Amtrak must meet. Finally, the
                 act requires that the Amtrak Reform Council (an independent oversight
                 body created by the act) submit an action plan to the Congress for a
                 restructured national intercity passenger rail system if, at any time more
                 than 2 years after the enactment of the act and the implementation of a
                 financial plan for operating within authorized funding levels, it finds that
                 Amtrak is not meeting its financial goals or that it will require federal
                 operating funds after December 2002. In addition, if the above events

                 4
                  Of this amount, only $228.4 million is available for obligation prior to September 30, 2000.
                 5
                  Amtrak participates in the railroad retirement system, under which each participating railroad pays a
                 portion of the costs for all retirements and benefits in the industry.



                 Page 2                                                                              GAO/T-RCED-00-30
                                      occur, Amtrak is required to develop and submit an action plan for its
                                      liquidation.


                                      Amtrak made some progress in improving its overall financial condition: it
Amtrak’s Overall                      reduced its net loss from about $930 million in fiscal year 1998 to about
Losses Decreased in                   $907 million in fiscal year 1999. (See fig. 1.) In calculating net loss amounts
Fiscal Year 1999                      for fiscal years 1998 and 1999, we excluded federal financial assistance
                                      from Amtrak’s revenues.6 This exclusion provides a clearer portrayal of
                                      Amtrak’s ability to meet its expenses from revenues generated by its own
                                      activities. This improvement in overall financial condition exceeded
                                      Amtrak’s expectation by $23 million. Amtrak estimates that its net loss for
                                      fiscal year 2000 will fall to $828 million.


Figure 1: Amtrak’s Net Loss, Fiscal
Years 1998 Through 2000




                                                                                      (estimated)




                                      Note: Net loss amounts do not include federal financial assistance.

                                      Source: GAO’s analysis of Amtrak’s data.




                                      6
                                       The Amtrak Reform and Accountability Act of 1997 eliminated the requirement that Amtrak issue
                                      preferred stock to the Department of Transportation in the value of federal appropriations received. As
                                      a result, beginning with its fiscal year-end 1998 financial statements, Amtrak, following guidance from
                                      its external auditors, recorded a significant amount of federal financial assistance as revenues instead
                                      of preferred shareholder equity. In addition, a portion of the federal funds made available by the
                                      Taxpayer Relief Act was also recorded as revenues.



                                      Page 3                                                                            GAO/T-RCED-00-30
                           Using Amtrak’s approach for measuring its budget gap, the railroad made
Amtrak Faces               some progress in moving toward operational self-sufficiency by the end of
Challenges in Meeting      2002. However, even this progress has been modest in comparison to the
Its Business Plan          total improvement needed. To meet the goal of operational
                           self-sufficiency, Amtrak has developed a series of strategic business plans.
Goals to Achieve           Amtrak’s latest strategic business plan, approved by its Board of Directors
Operational                in October 1998, anticipates that the corporation will not use any federal
                           subsidies for operating expenses (other than for excess railroad
Self-Sufficiency           retirement expenses) in fiscal year 2002—1 year earlier than requested by
                           the administration and specified in the Amtrak reform act.7 However, it
                           will not be easy for Amtrak to achieve its targets for revenues and
                           expenses for several of the business plan’s key actions.


Amtrak Cites a Narrowing   Amtrak’s efforts are pointed toward achieving operating self-sufficiency by
Budget Gap                 fiscal year 2002. To achieve this goal, Amtrak’s strategic business plan
                           focuses on reducing what it calls its “budget gap.” Amtrak defines its
                           budget gap as the corporation’s net loss less capital-related expenses,
                           including depreciation of its physical plant, other noncash expenses, and
                           expenses from its program to progressively overhaul railcars (i.e., to
                           conduct a limited overhaul of cars each year rather than a single
                           comprehensive overhaul every several years). In essence, the budget gap
                           represents expenses not funded by Amtrak’s revenues or its capital
                           program. In Amtrak’s view, if it reduces its budget gap to an amount equal
                           to excess Railroad Retirement Tax Act payments, it will have met the
                           statutory requirement for operational self-sufficiency.

                           According to Amtrak, its budget gap fell by $18 million in fiscal year
                           1999—from $494 million in fiscal year 1998 (after an adjustment for the
                           cost of retroactive labor payments was made8) to $476 million in fiscal
                           year 1999. (See fig. 2.) Amtrak estimates that the budget gap will be
                           reduced by another $114 million in fiscal year 2000 to $362 million.




                           7
                            Amtrak expects to release its next business plan in December 1999.
                           8
                            Although Amtrak’s audited financial statements allocated the full $106 million amount of the
                           retroactive payments for recently negotiated labor agreements to expenses for fiscal year 1998,
                           Amtrak officials, in calculating the budget gap, allocated the amounts over the years for which those
                           payments actually accrued ($35 million each in fiscal years 1996 and 1997 and $36 million in fiscal year
                           1998). The result of this allocation improved Amtrak’s fiscal year 1998 budget gap by $70 million.



                           Page 4                                                                            GAO/T-RCED-00-30
Figure 2: Amtrak’s Budget Gap and
Progressive Overhaul Expenses,
Fiscal Years 1994 Through 2000




                                                                                    (estimated)



                                    Note: Amtrak’s progressive overhaul program started in fiscal year 1995 and affected its
                                    expenses starting in fiscal year 1996.

                                    Source: GAO’s analysis of Amtrak’s data.




                                    However, Amtrak’s budget gap would be larger if expenses for progressive
                                    overhauls were included. Amtrak does not include these expenses in its
                                    calculation of the budget gap even though they are considered to be
                                    operating expenses under generally accepted accounting principles.
                                    According to Amtrak officials, while generally accepted accounting
                                    principles require the recording of such spending as operating expenses,
                                    Amtrak funds progressive overhauls through its capital program and
                                    therefore believes that the costs for them should be counted as capital
                                    costs.9 If progressive overhauls are included in the calculation of the
                                    budget gap, the gap would have decreased by $3 million in fiscal year 1999
                                    (rather than by $18 million)—from $561 million in fiscal year 1998 to
                                    $558 million in fiscal year 1999. In fiscal year 2000, the estimated gap
                                    would be $442 million if the costs of progressive overhauls are included,

                                    9
                                     According to Amtrak, if it is unable to fund its progressive overhaul program from federal funds after
                                    2002, it may be forced to move solely to a heavy overhaul program. Amtrak officials believe that the
                                    progressive approach keeps its equipment in a higher average state of good repair and is less
                                    expensive.



                                    Page 5                                                                            GAO/T-RCED-00-30
                          rather than $362 million. This issue will be important when the Amtrak
                          Reform Council assesses Amtrak’s need for federal funds for operating
                          self-sufficiency.

                          However, even if Amtrak’s definition of its budget gap is used, the railroad
                          must still reduce its losses substantially if it is to become operationally
                          self-sufficient by the end of fiscal year 2002. In the next 3 fiscal years,
                          Amtrak must reduce its budget gap by $291 million—from $476 million in
                          fiscal year 1999 to an estimated $185 million in fiscal year 2002—an
                          amount equivalent to excess railroad retirement payments.10 This needed
                          reduction is nearly four times the $78 million improvement that Amtrak
                          was able to achieve in the previous 5 fiscal years—1995 through 1999.


Achieving Amtrak’s        Under its October 1998 strategic business plan, Amtrak plans to reach
Strategic Business Plan   operational self-sufficiency by emphasizing business growth through a
Goals Will Be Difficult   number of initiatives focusing on increasing revenues. However, it will be
                          difficult for Amtrak to successfully carry out its plan, raising the question
                          about whether Amtrak will be able to achieve operational self-sufficiency
                          by the end of fiscal year 2002.

                          As shown in table 1, Amtrak estimates that its business plan initiatives will
                          result in net cash improvements of $1.6 billion for fiscal years 1999
                          through 2002. Table 1 also shows that the expected cash impact from six
                          key initiatives will account for nearly 60 percent of the expected financial
                          improvement—$917 million. The remaining benefits come from hundreds
                          of individual actions outlined in Amtrak’s business plan. Overall, Amtrak
                          projects that if it achieves the financial benefits associated with these
                          initiatives, it will gradually reduce its reliance on federal operating
                          assistance, and reach operating self-sufficiency by 2002.




                          10
                            According to an Amtrak official, the excess railroad retirement figure may be higher in the future,
                          reducing the budget gap that Amtrak must close. However, Amtrak has not finalized these estimates as
                          of late October 1999.



                          Page 6                                                                          GAO/T-RCED-00-30
Table 1: Estimated Financial Results of Amtrak’s Initiatives From Fiscal Year 1999 Through Fiscal Year 2002
Dollars in millions
                                                     Change in       Change in    Net cash
Initiative                                            revenues       expenses improvement             Basis for estimate
                                                                                 a
Begin high-speed service in late 1999                      $822             $414            $408      Ridership forecast
Expand express service                                       248             188a              60     Analyses of market potential
Align intercity route network to meet customer
demand                                                        60              (45)            105     Officials’ professional judgment
Implement service standards                                   85              (20)            105     Officials’ professional judgment
Purchase electricity at wholesale rates                        (5)            (34)             29     Negotiations with a utility company
Implement cost-saving initiatives                             56            (154)             210     Placeholders to balance annual budgets
Subtotal                                                  $1,266            $349            $917
Implement hundreds of other initiativesb                     840             148              692     Strategic business units’ forecasts
Total                                                     $2,106            $497          $1,609
                                                 a
                                                  The expenses for high-speed rail service and express service exclude $179 million and
                                                 $8 million for depreciation, respectively.
                                                 b
                                                 We did not review the bases for these estimates.

                                                 Source: GAO’s analysis of Amtrak’s October 1998 strategic business plan.



                                                 Amtrak expects its largest revenue increases to come from implementing
                                                 new high-speed rail service between Boston and Washington, D.C.,
                                                 (known as Acela service) and expanding its express package service (the
                                                 delivery of higher-value time sensitive goods). Amtrak also plans to
                                                 increase its revenues and control costs by developing a market-based
                                                 intercity route network that aligns its passenger service more closely with
                                                 customer demand (adding trains to certain routes or starting new service
                                                 where appropriate, for instance). In addition, by implementing service
                                                 standards (such as improving service to passengers), Amtrak expects to
                                                 increase ridership (and revenues) through higher-quality and more
                                                 consistent service. Amtrak plans to contain costs by reducing the costs of
                                                 electric power in the Northeast Corridor and implementing cost-saving
                                                 initiatives, such as enhancing productivity in a number of ways throughout
                                                 its system.

                                                 Among the challenges that Amtrak must surmount are achieving dollar
                                                 savings specified in its plan for which it had not identified any specific
                                                 action. In this regard, Amtrak’s plan contains broad categories of
                                                 cost-saving initiatives referred to as “undefined initiatives” and “planned
                                                 management actions to be developed.” These categories represent




                                                 Page 7                                                                       GAO/T-RCED-00-30
$210 million in net financial improvements for which Amtrak had not
identified specific initiatives or developed any plan of action when the
plan was approved. The amounts were placeholders to balance the yearly
budgets. Amtrak intends to achieve these net financial improvements
primarily through cost savings that it will identify on an ongoing basis. As
of June 1999, Amtrak officials had identified actions to be taken
representing a net financial improvement of about $49 million, reducing
the dollar amount of actions yet to be defined to about $161 million. An
Amtrak official told us that since June 1999, Amtrak has not updated its
identification of these actions.

As mentioned earlier, Amtrak plans to align its service to better meet
customer demand, referred to as implementing a market-based network.
Although Amtrak had not completed its network analysis when it adopted
its latest strategic business plan, the corporation estimated that its
realigned network will generate $105 million in net financial improvements
over the period by such actions as serving currently unserved markets that
have good demand potential.11 According to Amtrak officials, for the most
part, this estimate was based on senior officials’ judgment of changes in
revenues and expenses resulting from an analysis of the potential for
partnerships with states and local governments in certain transportation
corridors. Amtrak did not supply us with information on how it derived the
estimated financial improvement.

As we reported last year, the business decisions that Amtrak makes
regarding the structure of its route system will play a crucial role in
determining its long-term viability.12 We reported that, during fiscal year
1997, a number of Amtrak’s routes lost large sums of money: 13 routes
each lost more than $30 million. Further, for 14 of its routes, Amtrak lost
more than $100 per passenger. Finally, in fiscal year 1997, fewer than 100
passengers, on average, boarded Amtrak intercity trains and connecting
buses per day in 13 states.

Other major initiatives portrayed in table 1 face similar uncertainties and
are discussed in our July 1999 report.13 In addition, in September 1999,
Amtrak announced the delay of the start of its Acela Express high-speed

11
 As of October 1999, Amtrak was still completing its network analysis and had not made final
decisions regarding network changes, according to an Amtrak official.
12
 See Intercity Passenger Rail: Financial Performance of Amtrak’s Routes (GAO/RCED-98-151, May 14,
1998; and Intercity Passenger Rail: Prospects for Amtrak’s Financial Viability (GAO/RCED-98-211R,
June 5, 1998).
13
  See GAO/RCED-99-181.



Page 8                                                                         GAO/T-RCED-00-30
                        rail service. According to Amtrak, it is working on a combination of cost
                        avoidance and revenue enhancements that will offset the expected loss in
                        Acela Express passenger revenue in fiscal year 2000.

                        Finally, our ongoing work for this committee suggests that Amtrak may
                        continue to have difficulty in controlling certain costs, including labor
                        costs. In fiscal year 1999, labor costs represented about 52 percent of
                        Amtrak’s operating expenses. In fiscal year 1999, Amtrak exceeded its
                        budget for wage and overtime expenses for labor agreement-covered
                        employees, and over $24 million more was spent on wages than was
                        planned. It will be important for Amtrak to implement productivity
                        improvements to help offset cost increases. Amtrak is currently finishing
                        the last round of collective bargaining with its unions and estimates that
                        the total amount of wages and benefits paid will have increased by
                        $248 million over the 5-year period ending in fiscal year 2000. Amtrak has
                        been and plans to continue partially offsetting these wage and benefit
                        increases through such productivity improvements as increasing from 4
                        hours to 6 hours the threshold for a second engineer in locomotives.
                        Starting in fiscal year 2000, Amtrak must begin renegotiating contracts
                        with the 13 labor unions and 2 councils that represent about 90 percent of
                        its workforce. Amtrak has a goal to achieve a 0.2-percent decrease in labor
                        costs from fiscal year 2000 through fiscal year 2002.14 We plan to report
                        more fully on this and other information to this Committee in spring 2000.


                        The Taxpayer Relief Act of 1997 provided Amtrak with about $2.2 billion
Amtrak Has Used         to acquire capital improvements, upgrade maintenance facilities, and
Taxpayer Relief Act     maintain existing equipment in intercity passenger rail service; and pay
Funds to Finance a      interest and principal on obligations incurred for these uses. Amtrak had
                        reported spending over $1.2 billion of these funds for these uses through
Variety of Activities   May 31, 1999.15

                        Amtrak reports spending over half of the $1.2 billion—or $756 million—of
                        TRA funds for capital improvement projects related to intercity passenger
                        rail through May 1999. This includes $527 million in infrastructure-related
                        improvements, such as track signals and improvements to bridges and
                        electric catenary toward completion of Amtrak’s Acela high-speed rail
                        service between Washington, D.C. and Boston. The $756 million also
                        includes about $201 million for capital projects related to the acquisition
                        of and improvement to rolling stock used in intercity passenger service.

                        14
                          In constant 1998 dollars.
                        15
                          As required by law, Amtrak has also paid $139 million to states without Amtrak service.



                        Page 9                                                                           GAO/T-RCED-00-30
                       Amtrak has also reported spending $427 million—about one-third of all TRA
                       expenditures—for maintenance of equipment expenses through May 1999.16
                        Even though maintenance of equipment is an allowable expense under
                       TRA, Amtrak plans to ultimately use most TRA funds for high-rate-of-return
                       capital improvement projects. Amtrak therefore intends to “repay itself”
                       for the TRA funds that have been used to pay for maintenance of equipment
                       expenses.17 According to Amtrak’s October 1998 strategic business plan,
                       these repayments will begin this fiscal year, and, according to Amtrak,
                       $100 million was repaid on October 1, 1999.

                       Amtrak does not identify the specific equipment maintenance expenses
                       that TRA funds were used for. TRA funds are not used to pay for equipment
                       maintenance expenses at the time they are incurred. Rather, Amtrak has
                       used TRA funds to reimburse itself for equipment maintenance expenses
                       after these expenses have already been paid from other sources. Amtrak
                       applies TRA funds to a pool of allowable equipment maintenance expenses
                       as a whole, rather than individual invoices. According to Amtrak, there is
                       always a sizable pool of allowable equipment maintenance expenses and it
                       has used TRA funds for an amount smaller than the allowable pool.
                       Therefore, Amtrak believes that it has used TRA funds only for purposes
                       that are allowable under the act.

                       Finally, Amtrak has used nearly $48 million in TRA funding to make
                       principal payments on its long-term debt. According to Amtrak’s data, the
                       debt that TRA has serviced has been used to acquire rolling stock
                       (locomotives, passenger cars, etc.) and to rebuild facilities.


                       Capital investments are critical to supporting Amtrak’s business plans and
Amtrak Will Continue   maintaining its viability. Such investments are needed to help Amtrak
to Have Significant    improve its quality of service and attract revenues. However, Amtrak
Unmet Capital          continues to have significant unmet capital needs. In addition, Amtrak
                       currently does not have a comprehensive 5-year capital plan to identify all
Investment Needs       its needs and how they will be financed.18


                       16
                         This includes $15 million in expenses for maintenance of equipment that Amtrak does not plan to
                       repay.
                       17
                         Amtrak has historically funded progressive overhauls through its capital program even though it
                       records them as operating expenses consistent with generally accepted accounting principles. Because
                       Amtrak views progressive overhaul expenses as capital expenses, not operating expenses, it does not
                       plan to repay about $104 million of these expenses as it does for most of the other maintenance of
                       equipment expenses.
                       18
                         Amtrak expects to adopt a 5-year capital plan covering fiscal years 2000 to 2004 in December 1999.



                       Page 10                                                                          GAO/T-RCED-00-30
To date, from discussions with Amtrak, we have identified about $1.5
billion in short-term (up to 5 years) capital needs. These include:
$800 million to complete the Acela high-speed rail program in the
Northeast; $425 million for capital debt payments; $194 million for life
safety investments in the Northeast Corridor; and $94 million for
maintenance facility improvements. In addition, Amtrak will require
capital funding to conduct mandated environmental remediation projects;
expand high speed rail service to other corridors; make track
improvements in the Northeast Corridor; and buy new equipment for its
planned mail and express service expansion and other possible refleeting
actions. For example, Amtrak estimates that it will need an additional
1,500 pieces of equipment to meet current and expected mail and express
service projections. Federal funding expected to be available from 2001
through 2003 could meet some of these short-term capital investment
needs. As a result, Amtrak may be required to rely heavily on state, local,
and private financing.

Amtrak will also face significant capital funding needs over the long term
(5- to 20-years). In discussions with Amtrak and the Federal Railroad
Administration, we have identified some of these needs. These long-term
needs consist mainly of bringing the Northeast Corridor up to a state of
good repair. In May 1996, the Federal Railroad Administration and Amtrak
estimated that up to $6.7 billion might be needed to recapitalize the
corridor and make improvements targeted to respond to high-priority
growth opportunities over the next 20 years. (As of fiscal year 1999, there
has been no significant recapitalization of the south end of the Northeast
Corridor.) If the identified state of good repair needs are not adequately
addressed, Amtrak’s trip times, including those for high-speed rail, and
operational reliability could be adversely affected. Amtrak is currently
finalizing a study of the costs associated with state of good repair needs on
the south end of the Northeast Corridor (New York City to Washington,
D.C.). Significant capital investment will also be required for other
projects. These include (1) life safety work in the New York City area
(such as improving the ability of passengers to leave a rail tunnel in an
emergency), (2) capacity improvements and replacement of the electric
catenary system on the south end of the Northeast Corridor, and
(3) continued high-speed rail improvements on the Northeast Corridor.
Amtrak has not yet identified sources of funds for its long-term needs.

Although Amtrak has significant capital investment needs, it does not have
a 5-year capital plan, making it unclear at this time what Amtrak’s total
current capital needs are and how it plans to fund these needs. In addition,



Page 11                                                     GAO/T-RCED-00-30
                  because Amtrak does not have a comprehensive capital plan, it has not
                  made decisions about the relative priority of capital improvements should
                  anticipated funding sources—such as federal appropriations, assistance
                  from states, and private financing—be insufficient to meet the railroad’s
                  capital investment needs.


                  The Congress gave Amtrak until the end of fiscal year 2002 to reach
Observations      operational self-sufficiency. Amtrak has focused its ambitious strategic
                  business plan to meet this goal 1 year earlier than required by the
                  Congress. Yet, Amtrak has made relatively little progress over the past 5
                  years toward achieving this goal: In the next 3 years, Amtrak must achieve
                  nearly four times as much in financial improvements as it was able to
                  achieve through its business plans over the previous 5 years. In addition,
                  Amtrak has substantial capital needs that, if met, could help it improve
                  service, attract and retain passengers, and improve its financial condition.
                  However, Amtrak does not have a comprehensive capital plan; nor has it
                  identified funding sources to cover all its capital needs. The stakes are
                  high: if Amtrak does not become operationally self-sufficient by the end of
                  2002, the Amtrak Reform Council must submit to the Congress plans for
                  restructuring the railroad and Amtrak must prepare a plan for its own
                  liquidation.


                  Mr. Chairman, this concludes our testimony.19 We would be pleased to
                  answer to any questions that you or Members of the Subcommittee may
                  have.


                  For information regarding this testimony, please contact Phyllis F.
Contact and       Scheinberg at (202) 512-3650. Individuals making key contributions to this
Acknowledgments   testimony were Angela Clowers, Catherine Colwell, Richard Jorgenson,
                  Debra Prescott, and James Ratzenberger.




                  19
                   The information contained in this testimony is based on our July 1999 report on Amtrak’s financial
                  condition (GAO/RCED-99-181); updated information on Amtrak’s financial results; and our ongoing
                  work for this Committee on Taxpayer Relief Act expenditures and Amtrak’s major costs and capital
                  needs. We performed our work in October 1999 in accordance with generally accepted government
                  auditing standards.



(348185)          Page 12                                                                         GAO/T-RCED-00-30
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